London attack: 5 shocking ways terrorism affects economies

A worker cleans Westminster Bridge the morning after an attack, in London Britain, March 23, 2017. REUTERS/Darren Staples

As the world watched, an unnamed assailant went on a rampage on London’s streets on Wednesday. Four people lost their lives in the deadly attack near the Houses of Parliament.

Financial impact of the ugly incident is yet to be ascertained but one can assume it will be colossal as the metropolis came to a standstill as events unfurled.

Unfortunately, the world continues to lose more money than it invests as terrorism and violence increase grossly.

The economic impact of violence on the global economy in 2015 was $13.6 trillion in purchasing power parity (PPP) terms, according to the figures from Global Peace Index (GPI).

To put this in macroeconomic perspective, the figure amounted to 13.3 per cent of the world’s GDP and it was nearly 11 times the size of global foreign direct investment.

If the lost money was distributed equally across the globe, every person would have received $1,876.

Destruction of infrastructure

Any terrorist activity begins with physical damage to properties. Numerous buildings, roads, railways and airports have been destructed in such incidents. These take a very huge share of governments’ fiscal budgets. Also, factories, machines, vehicles, skilled labourers and other resources are eliminated during the course of violence. In addition, damages to utility resources will have both short-term and long-term impacts on economy.

Uncertainty in markets

Markets are highly vulnerable to any development that catches the attention of investors. After the globalisation, markets have been responding to news-making events even if they are taking place miles away in a different country or a region. Shares in stock markets worldwide had fallen in response to militant attacks in Paris last year.

Investor confidence

Insurgent attacks have the highest potential to dampen the confidence of investors. As risk appetite of businesses wanes, they would turn away from investing in new markets or expanding in existing geographies.

Last year Syria, Iraq and Afghanistan incurred the largest economic impact as a percentage of their GDP at 54, 54 and 45 per cent of GDP respectively, according to the GPI 2016 report.

Governments spend billions of dollars after militant attacks in order to avoid such occurrence in future. For stepping up military strength and acquiring new weapons and technology as well as boosting intelligence many of the countries across the world allocate nearly half of their budget.

Following a suspected bombing of a Russian plane in Sinai in 2015, Egypt invested some $50 million in airport security.

Tourism

The most immediate impact of any violence will be felt on a country’s tourism sector, which is the backbone of economy in many parts of the world.

In 2010, 14.7 million tourists visited Egypt’s beaches and ancient sites but five years later the number of travellers plunged to just 9.3m as the country witnessed popular uprising and an array of terrorist attacks.

People tend to cancel or postpone their holidays which directly affects airlines, tour operators, hotels, restaurants and retailers.

Between 1970 and January 2016, there have been more than 160 terrorist attacks targeted at hotels worldwide. Over the past five years alone, more than 40 hotel terrorist attacks have occurred, according to figures from security consultancy firm Restrata.

Botan Osman Managing Director of Restrata says that hotels have been seen as a soft target for terrorist attacks because they tend to have large, open spaces and attract a high number of visitors, many of whom are often foreigners.

“Hospitality targeted attacks may rise unless the industry takes a harder stance. This can be done whilst balancing the business needs of the hotel.”

“Examining the growth in hotel attacks demonstrates a worrying statistic, with a quarter of all hotel attacks since 1970 occurring in the past five years. Documented attacks within the hotel industry focus primarily on North African states where terror levels are already high, yet research suggests a number of hospitality premises in these areas are lacking in basic security design features,” Osman adds.

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